The Fourth Industrial Revolution (FIRe): Opportunities and Challenges for the Philippines

www.pids.gov.ph

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Philippine Institute for Development StudiesSurian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

Bohol Tropics, Tagbilaran City, Bohol

March 6, 2019

Ramonette Serafica, Ph.D. and

Jose Ramon G. Albert, Ph.D.

Agenda1. Introduction

Economic Growth and Technologically-Driven Progress What is the FIRe and its Frontier Technologies? Potential Impacts from FIRe Technologies

2. Innovation Ecosystem Readiness for Future Production Innovation Statistics

3. Gardening Innovation Preparing the Ground (Education) Nurturing the Soil (R&D) Watering the Ground (Support to Innovation) Others : Social Protection, Tax Reform, Whole of Nation

Paradigm and Action Agenda

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Since the 1960s, the Philippines has had booms and busts

1. Technology and Progress

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• Negative growth in East Asia

only in 1998, and across the

world in 2009

• Buoyant expectations for

global progress in the wake

of the emerging Fourth

Industrial Revolution

(FIRe)

• Starting 2012, PH economic

performance even better than

average in East-Asia

and the world

1998: Asian Financial Crisis

1983: Aquino assassination

2008: Global Financial Crisis

History of Technological Progress

1. Technology & Progress (cont’d)

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Fire

Agriculture

Wheel

Cities

Manufacturing & Trade

1.1. What is the Fourth Industrial Revolution (FIRe)?First came steam and water power; then electricity and assembly lines; then computerization. Throughout history, we have improved industry by migrating from established production methods to utilizing cutting-edge technologies

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1st Revolution(1784)

Steam, water,

mechanical production

equipment

2nd Revolution(1870)

Division of labor,

electricity, mass

production, assembly

line

3th Revolution(1969)

Electronics, computers,

internet, automated

production

4th Revolution(???)

Cyber-physical systems

“a fusion of technologies

that is blurring the lines

between the physical,

digital and biological

spheres.” –Schwab (2016)

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identified by select organizations

- No universally agreed definition of frontier technology

- It shows that the following technologies have been most commonly identified as frontier: 3D printing, the Internet of Things, AI, and robotics

(ESCAP, 2018)

1.2. FIRe Frontier Technologies

SDG APPLICATIONS

Agriculture (SDGs 1, 2, 5, 8, 10 and 12)

Recent advances in image recognition allowed researchers to scan more than 50,000 photos of plants to help identify crop diseases at sites using smartphones with a success rate of over 99 per cent

Healthcare (Goal 3) AI applications have been developed that substitute and complement highly educated and expensive expertise by analyzing medical images. 3D printing produce patient specific prosthetics, orthotic braces and customized medical implants.

Environment and climate (Goal 13)

AI and deep learning can help climate researchers and innovators test out their theories and solutions as to how to reduce air pollution

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ESCAP (2018)

Sustainable Development Goals (SDGs)

1.3. Potential Impacts of FIRe

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Economic Implications

Socio-Cultural Implications

Political & Security Implications

Robotics and AI

Technological unemployment

Income Inequality Disruption of

traditional business models and global value chains

Rise of monopolies and oligopolies

Political polarization Instability Data and access security

risks to automation Espionage, Terrorism,

Autonomous warfare

IOT Disruption of traditional business models

Erosion of personal privacy

Lack of trust in institutions

Cybersecurity problems Data fraud

3D-printing

Disruption of existing business processes

Weapons proliferation Cyber-sabotage

1.3. Potential Impacts of FIRe (cont’d)

Likely Unintended Consequences

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ILO (2016)

Share of wage and salaried employment in key manufacturing subsectors at high risk of automation (per cent).

Acc to ILO, in the Philippines:

nearly half (49%) of wage workers (males: 44%, females : 52%) face a high probability of getting affected by automation

those working as fishery labourers (580,000), waiters (574,000), carpenters (525,000) and office cleaners (463,000) face a high potential of automation

around 89 per cent of salaried workers in BPO sector fall into the high risk category of automation

1.3. Potential Impacts of FIRe (cont’d)

The Fourth Industrial Revolution will trigger selective reshoring, nearshoring and other structural changes to global value chains (WEF 2018, ILO 2016)

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Autor (2015) argues that extent of machine substitution for jobs tend to be overstated by ignoring strong complementarities which increase productivity, raise earnings and augment demand for labor Autor adds that even if automation does not reduce quantity of jobs, it may affect the qualities of jobs that are available Policy implication: human capital investments must be at the heart of any long-term strategy on preparation for impact of technology on jobs

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1.3. Potential Impacts of FIRe (cont’d)

Automation and The Future of Jobs

2.1. WEF Assessment on PreparationsThe seven ASEAN countries are spread across three different archetypes: Leading— Malaysia and Singapore; Legacy—Philippines and Thailand; and Nascent— Cambodia, Indonesia and Viet Nam.

Legacy country - has a strong production base today, but it is at risk for the future due to weaker performance across drivers of production, which include technology and innovation, human capital, global trade and investment, institutional framework, sustainable resources, and the demand environment.

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WEF (2017)

Country Archetypes

2. Innovation Ecosystem

2.1. WEF Assessment on Preparations (cont’d)

Investments in R&D, hard and soft infrastructure, as well as capacity dev’t of human resources and institutions are complementary factors for Inclusive Development and for Readiness for Future of Production

www.pids.gov.ph 13

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78

Drivers

of

Pro

duction

2 4 6 8 10Structure of Production

Asia and the Pacific Europe

Latin America and Caribbean Middle East and North Africa

North America Sub-saharan Africa

WEF (2018)

Drivers and Structure of Production

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2.2. Statistics on Innovation in PH

Innovation is widely regarded as a major driver of economic output, productivity and competitiveness … but not all firms innovate

PHILIPPINES ALL COUNTRIES

Indicator 2009 SIA 2015 PIDS 2015 WORLD BANK ENTERPRISE SURVEY

Percent of firms that introduced a new product/service

37.6 30.7 32.9 36.6

Percent of firms that introduced a process innovation

43.9 30.6 40.9 34.2

Percent of firms that spend on R&D 40.3 26.7 21.9 16.9

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Global Innovation Index (GII), Global Competitiveness Index (GCI), and Existing Competition Policy

ASEAN Member State

2017 GII Ranking 2016 GII Ranking 2017 GCI Ranking 2016 GCI Ranking Existing Competition Policy

Singapore 7th 6th 3rd 2nd Competition Act 2004

Malaysia 37th 35th 23rd 25th Competition Act 2010

Thailand 51st 52nd 32nd 34th Trade Competition Act 1999

Viet Nam 47th 59th 55th 60th Competition Law 2004

Philippines 73rd 74th 56th 57th Phil Competition Act 2015

Indonesia 87th 88th 36th 41st Law Number 5 Year 1999 on the Prohibition of Monopolistic Practices

and Unfair Business Competition

Cambodia 101st 95th 94th 89th Draft Competition Law 2016

2.2. Statistics on Innovation in PH (cont’d)

3. Gardening innovation

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Source: World Bank (2010)

3.1. Preparing the ground (Education)

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Skills and competencies developed in school should be like LEGO blocks which can used to create different figures using the same building blocks Need for lifelong learning, continuous training and retraining; the only way to keep up is to continuously learn, unlearn, and re-learnoA key skill is “learning how to learn.

Pedagogy should go beyond transmitting knowledge into encouraging reconstruction of knowledge Source: WEF (2015)

3.2. Nurturing soil (Research)The bulk (60%) of R&D spending across sectors is actually supported by government (Albert et al., 2015).

While the Philippines has had a slight increase in R&D expenditure to GDP in recent years, this spending is still at less than a fifth of one percent of GDP, which is below the one percent benchmark recommended by UNESCO.

The country’s share of spending in GDP also falls below spending of several ASEAN member states, especially Singapore (2.4 %) and Malaysia (1.3 %), and even including Thailand (0.5 %) and Viet Nam (0.2 %).

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3.3. Watering Ground (Finance, Support to Innovation) DTI, DOST and CHED working in tandem on Inclusive

Innovation Industry Strategy (“i3S”)

DOST programs to boost innovation support Science for Change Program (S4CP) Balik Scientist 2.0 SETUP

DICT Addressing Issues on coverage, price and quality of

internet formulating successor to Philippines Digital Strategy

2011-2015, developed National Broadband Plan e-Government Master Plan 2016-2020 (EGMP 2.0),

established GovCloud

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ROI on Innovation/R&D Spending rate of return begins to fall and may even be negative for quite poor countries

Explanation: when countries are far from the technological frontier, the potential gains from “catch-up” increases but when stock of complementarity factors (human capital, firm and management capabilities, financial markets) are missing, returns will be low

Issues about absorptive capacitySOURCE: Innovation Paradox

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CAUTION: Returns to R&D Trace an Inverted U-Shape across the Dev’t Process

3.3. Watering (Finance, Support to Innovation) (cont’d)

3.4. Removing Weeds (Competition, Deregulation) In the most recent Doing Business 2018 (2018) report,

the Philippines ranking slipped from 99th in 2017 to 113th

behind Vietnam and Indonesia at 68th and 72nd, respectively. Among the indicators, the Philippines was ranked lowest in “starting a business”

According to the OECD (2016), foreign direct investment (FDI) restrictions in the Philippines are high by both regional and global standards. Based on OECD FDI Regulatory Restrictiveness Index, the Philippines is the most restrictive economy among the 62 OECD and non-OECD countries included in the database. Compared to other countries (e.g. China, Vietnam, India, Indonesia, and Malaysia) the regulatory environment for FDI in the Philippines has not changed much in the last 20 years.

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3.5. Other challenges and issues Responsive and adaptive regulation

o Regulatory sandboxo “Whole of Government”

Labor market and social protectiono Flexible and forward-looking labor marketo Strengthening social protection systems: progressive

universalism and portable social protection systems o Universal basic income (???)

Taxation reform/upgrade (???) : : improve collection of real property tax, provision of excise taxes on sugar, tobacco and alcohol, subsidy reforms, reducing tax avoidance.

Whole of Nation Paradigm and Action Agenda

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Philippine Institute for Development StudiesSurian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

Service through policy research

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WEBSITE: www.pids.gov.ph

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TWITTER: twitter.com/PIDS_PH

EMAIL jalbert@mail.pids.gov.ph ; rserafica@mail.pids.gov.ph;

[ Thank you ]

Preparing the Philippines for the Fourth Industrial Revolution: A Scoping Study

(PIDS Discussion Paper 2018-11)

Harnessing government’s role for the Fourth Industrial Revolution

(PIDS Policy Note 2018-14)